Key Issues to Consider When Dealing with Financial Issues

By Dan Branch (CPA/ABV, ASA)
IAG Forensics & Valuation
dan@iagforensics.com

If you have worked with experts, then you know that from day one you and the expert need to be on the same page. So, when dealing with financial issues, you and the financial expert need to determine and agree on many key issues – and failing to do so correctly puts your case at risk.

One issue to consider when dealing with such financial issues (e.g., cases dealing with business damages, shareholder disputes, or disagreements as to the value of privately-held businesses) is the basis of value. The basis of value dictates the perspective with which a financial expert (in this case typically a valuation specialist) considers the entity being valued. But what is the basis of value that is appropriate for your case?

Applying the correct basis of value is an essential element of obtaining a reliable and appropriate valuation. . . you and your financial expert [must be on] the same page about all of the key issues.”

One basis of value, “Fair Market Value,” typically applies in tax related analyses and family law matters. Fair Market Value is typically based on IRS guidelines and case law (which can vary by state).

“Fair Value” can be the basis of value in litigation related analyses (even in the family law arena in Georgia, some would argue that Fair Value applies – see how it can get confusing?) and in financial reporting. Fair Value is typically based on case law (which can vary by state) and accounting regulations or guidelines.

Other bases of value include:

Investment Value. (sometimes referred to as “Synergistic Value” or “Strategic Value”) which reflects the value that may reflect a specific buyer’s perspective and may include expected synergies (such as cost savings), benefits from strategic initiatives related to a transaction, or other special considerations.

Intrinsic Value. which reflects the inherent value within a business entity. This value typically is the value reflected by stock analysts who try to determine a stock’s intrinsic value compared to the market price.

Liquidation Value. typically reflects the value that could be achieved if a business entity faces a liquidation event, typically bankruptcy. This value may include “fire sale” considerations.

The basis of value is one of the key issues to consider when dealing with financial issues in your case. Applying the correct basis of value is an essential element of obtaining a reliable and appropriate valuation. Therefore, it is imperative you and your financial expert are on the same page about all of the key issues relevant in your case, especially the basis of value.

Dan Branch (CPA/ABV, ASA) is a partner at IAG Forensics & Valuation and is a member of IAG’s Valuation Services practice. He can be reached at 770-635-1582 or by e-mail at dan@iagforensics.com.